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Revised Company Ordinance 1984

Revised Company Ordinance 1984

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Corporate Law

The Companies Ordinance 1984

1

Types of business organization
‡ Sole Trader ‡ Partnership ‡ Company

2

WHAT IS A COMPANY ?
DEFINITION:

A Company is an association of persons united for a common purpose. According to the Companies Ordinance, 1984, Company means a company formed and registered under the Companies Ordinance.

3

Kinds of Companies
Companies formed under the Companies Ordinance, 1984 are of three kinds, namely: (a) Companies limited by Shares (b) Companies limited by Guarantee (c) Unlimited Companies

4

Company limited by Shares
‡ A Company in which the liability of the members is limited to the nominal value of the shares (s.16). ‡ When the liability of the Company is limited by shares it means that no member can be called upon to pay more than the nominal amount of his shares

5

Company limited by Guarantee
‡ A company in which the liability of the members is limited to the amount which each has undertaken, by the Memorandum of Association, to contribute to the assets of the company in the event of a winding-up (s.17)

6

Statutory Companies
‡ The Companies which are incorporated by a special act of legislature or under an ordinance are named as statutory companies. For Instance, State Bank of Pakistan, National Bank of Pakistan, PICIC (Pakistan

Industrial & Credit Investment Corporation), Pakistan Steel etc.
‡ The companies under the special act of legislative have been mostly

invested with special powers.
‡ They also enjoy special rights and privileges which are not available to companies incorporated under the companies ordinance 1984.

7

Registered Companies
A company which is formed and registered under the companies ordinance 1984 is known as a registered company. The companies ordinance provides registration of following four(04) types of companies.

± Company limited by shares ± Company limited by guarantee ± An unlimited company ± Association not for profit

8

Company Limited by shares
It is the company which keeps the liability of its members limited up to the value of the shares purchased by them. It is essential for such companies to use the word Limited at the end their names. Functional Division of Companies ‡ Private Companies ‡ Public Companies

9

Company Limited by shares
‡

‡

Private Companies A private company is an association of minimum two and maximum fifty share holders. It restricts the rights of its members to transfer their shares in the company. It also prohibits any invitation to the public to subscribe to its share or debentures. Public Companies A public company must have at least seven share holders, but there is no limit to the maximum number. Public company issues a prospectus for inviting people to purchase its shares. The shares of a public company are freely sold and purchased in the stock market.

10

Company Limited by guarantee
‡ It is the company in which the liability of its members is limited up to the amounts guaranteed by each member at the time of winding up the company. ‡ This type of company is formed mostly for taking non business operations such as clubs and charitable institutions, the examples are stock exchanges, arts councils, ICAP or ICMA etc.
11

An Unlimited Company
‡ An Unlimited company is registered without any limit on the liability of their members ‡ Every member of the company is liable to the full extent of his personal asset for all the debt of a company while he was a member. ‡ The unlimited company, due to great risk do not exist in Pakistan.

12

Association Not for Profit.
‡ It is registered under section 42 of the companies ordinance without the addition of the word Limited to its name, it is registered with limited liability. ‡ The association enjoys all the privileges and obligations of a limited company. ‡ It is formed for promoting commerce, arts, science, religion, charity or any other object. ‡ The Federal Government grants license to the association that is capable of being formed as a company.

13

CLASSIFICATION ON THE BASIS OF OWNERSHIP
‡ ‡ Holding Company Subsidiary Company Holding Company A company is said to be the holding company of the other, if it owns or holds more than 50% of the share capital of the other company, or it has control of more than 50% of its directors. Subsidiary Company A company is said to be the subsidiary of the other company when one of the following conditions are fulfilled. (I) Formation of Board of Directors is controlled by another company. (II) The other company controls more than half of the voting rights of this company. (III) The other company owns more than 50% share capital of this company.

14

STEPS REQUIRED IN REGISTRATION OF A COMPANY

‡ Getting Promoters Together: Those who form the company are known as promoters who must get together to work out the skeleton of the company. ‡ Appointment of Advisor: Promoters appoint legal advisors who under the guidance and instructions of promoters, prepare memorandum and articles of association, prospectus, and deal with the office of the registrar of the company.
15

STEPS REQUIRED IN REGISTRATION OF A COMPANY Preparation of company documents: The companies ordnance requires preparation of following documents before the company applies for registration 1. Memorandum of Association 2. Article of association 3. Prospectus

16

STEPS REQUIRED IN REGISTRATION OF A COMPANY
Submitting application with the registrar: An application for registration is submitted along with the registration fee through the registrar of the company with attachment of following documents 1. Memorandum of Association 2. Articles of association 3. Prospectus 4. List of names and addresses of directors 5. Signed statement of directors or the secretary that all the required legal formalities have been completed. 6. Address of the registered office of the company.

17

STEPS REQUIRED IN REGISTRATION OF A COMPANY
Declaration of qualifying shares: All the directors, have to submit a declaration certificate that they have taken up qualifying shares and have paid up the money Issuance of Registration Certificate: On the issuance of registration certificate by registrar, private company can start its business immediately, while public company cannot until it gets another certificate known as Commencement Certificate . Publication of Prospectus: On the receipt of the registration certificate the company issues prospectus which is an invitation to the public to buy shares of the company. Commencement Certificate: After raising capital through prospectus, the company applies for the commencement certificate. After obtaining this certificate the public can start its actual operation

18

BASIC LEGAL DOCUMENTATION

‡ ‡ ‡

Memorandum of Association Articles of Association Prospectus

19

Memorandum of Association
‡ It is a document issued by a company for the guidance of general public ‡ it is known as the charter of the company which explains to the public name, address, capital, objectives and liability of the company. ‡ It defines its limitation and powers and guides shareholders and creditors of the company. ‡ It is divided in to five clauses

20

Memorandum of Association
‡ CLAUSES OF MEMORANDUM Name Clause A company may adopt any name but it should not resemble the name of any other company and should not contain the words like king, queen, govt. bodies, UNO etc. The name should not be objectionable in the opinion of the government. The word limited must follow the name of the company in case of Public company, while (private) limited must follow with the name of company in case of Private company Domicile (Situation) Clause Every company must have a registered office, a memorandum must mention the name of the province and exact address where the company has its registered office Objective Clause A company must specifically, expressly and clearly mention its objectives for which it has been formed. Capital Clause This clause mention the authorize capital of the company, the company s subscribed, called up, and paid up capital should not exceed it. Liability Clause This clause shows that the liability of the share holders of the company is limited to the amount invested by them.

21

Articles of Association
‡ It is a document explaining rules and regulations regarding the internal affairs of the company, according to company s ordinance 1984, every company registered by shares must prepare and file articles of association with the registrar of the companies. ‡ If a company does not prepare and file its own articles then Table A of the company s ordinance would apply for a private company articles of association are not binding.

22

Articles of Association
CONTENTS OF ARTICLES ± Amount of share capital issued, transmission of share ± Rights of share holder regarding voting, dividend, return of capital ± Rules regarding issue of shares and debentures ± Procedures as well as regulations in respect of making calls on shares ± Manner of transfer of shares ± Rules regarding appointment of directors, managing directors, agents, secretaries, treasures ± Number, qualification, remuneration, powers and liabilities of directors ± Declaration of dividends ± Convening and conduct of meetings with reference to notice, forum, polls, proxy, resolutions etc ± Rules regarding the forfeiture and surrender of shares ± Matters relating account and audit ± Rules regarding winding up of a company

23

Prospectus
‡ It is an invitation, advertisement or circular asking people to invest and subscribe in the share capital or debenture of the company. ‡ For a private company prospectus is not required, even for a public company it is not compulsory. ‡ If a public company does not want to issue prospectus, it must, then file a statement in lieu of prospectus with the registrar. ‡ The prospectus must be signed by at least two directors. ‡ In prospectus the detail description regarding the establishment of the company, its characteristics and its estimated future is given.

24

STATEMENT IN LIEU OF PROSPECTUS

‡ According to company ordinance, if a public company is not issuing a prospectus on its formation, it then must file a statement in lieu of prospectus with the registrar of the company three days before the allotment of shares of debentures ‡ Must be signed by each director and include all the information that should be given in the prospectus.
25

MANAGEMENT OF THE COMPANY ‡ Shareholders ‡ Directors ‡ Chief Executive

Chief Executive

Directors

Shareholders

26

COMPANY MEETINGS

A public company is required to call a meeting with shareholders with certain agenda to be discussed there and to get their vote on important affairs.

27

Statutory Meeting
It is the first meeting of the members of a public limited company. Statutory meeting must be held at least after three month and before six months since the registration of the company.

28

Statutory Meeting
‡ Notice of the meeting: a notice of the statutory meeting to the shareholders must be issued at least 21 days before the meeting. ‡ Issue of Report: statutory report must also be issued at last 21 days before the meeting is held, and it must be signed by at least three directors, one being the chief executive. ‡ Nature of proceedings of the Meeting: in the meeting following proceedings take place: a. name, address, nationality, profession of all members (shareholders). b. the member present at the meeting have the right to discuss any matter relating to the formation of the company or arising out of the statutory report.

29

Annual General Meeting

Every public company must hold a general meeting of its members within eighteen months from the date of formation and within fifteen months every year after first meeting.

30

Annual General Meeting
‡ Notice of the meeting: a notice of the annual general meeting to the shareholders must be issued at least 21 days before the meeting. ‡ Nature of proceedings of the Meeting: in the meeting following proceedings take place: a. consideration and adoption of the audited annual accounts. b. declaration of the dividends. c. the election and appointment of the directors.

31

Extra-Ordinary General Meeting
‡ All general meetings of a company other than annual general meeting and statutory meeting are known as extra-ordinary general meeting. ‡ It is conducted when an annual general meeting is not due under the law but pressing affairs have come up to be discussed with the shareholders. ‡ The meeting can be called: a. by directors to consider any matter which they think it necessary. b. by directors on the requisition of the shareholders representing not less than one-tenth of the voting power. c. by the requisiteness if the directors do not proceed within 21 days of calling the meeting.

32

‡ What are shares and debentures? ‡ A debenture is an unsecured loan you offer to a company. The company does not give any collateral for the debenture, but pays a higher rate of interest to its creditors. In case of bankruptcy or financial difficulties, the debenture holders are paid later than bondholders.
33

‡ Debentures are different from stocks and bonds, although all three are types of investment. Below are descriptions of the different types of investment options for small investors and entrepreneurs.

34

‡ Debentures and Shares When you buy shares, you become one of the owners of the company. Your fortunes rise and fall with that of the company. If the stocks of the company soar in value, your investment pays off high dividends, but if the shares decrease in value, the investments are low paying. The higher the risk you take, the higher the rewards you get.
35

‡ Debentures are more secure than shares, in the sense that you are guaranteed payments with high interest rates. The company pays you interest on the money you lend it until the maturity period, after which, whatever you invested in the company is paid back to you.

36

‡ The interest is the profit you make from debentures. While shares are for those who like to take risks for the sake of high returns, debentures are for people who want a safe and secure income.

37

‡ What is redemption of shares and debentures? Redemption of Shares The process whereby a company can redeem shares through repayment of the nominal value to the shareholder.

38

‡ Discount on issue of shares and debentures? Issue of shares at discount: A company may issue shares at a discount i.e. at a value below its par value.

39

‡ Difference between shares and debentures? Shares forms ownership of the company , where as Debentures are the debt for any company. Shares investments returns in form of share in profit (dividend on shares) whereas Debentures returns with...

40

‡ What are the differences between share and debenture? SHARES- 1.share holder is the real owner of the company. Share holders have no fixed dividend rate. Share holders have no maturity period. Shares are not redeemed. Shares are more volatile.
41

‡ Difference between debenture and preference shares? DEBENTURES ARE THE LOAN OF THE COMPANY WHEREAS PREFRENCE SHARES ARE THE PART OF SHARE CAPITAL

42

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